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Freshly Minted Unicorns Now a Rare Sighting In Silicon Valley (qz.com)
An anonymous reader shares a Quartz report: Unicorns, start-up companies valued at over $1 billion each, once a rare sighting for investors, have frolicked across Silicon Valley of late. Now the market seems to be yanking on the reins. Venture capital research firm CB Insights reports the number of venture-backed startups achieving a $1 billion or more valuation ground to a halt over the last six months. In the first quarter of 2016, only five new unicorns arrived. That's compared to an average of about 20 per quarter last year. The number of startups worth at least $1 billion has doubled since 2015 to more than 160, says CB Insights. At the same time, the number of such companies accepting "down rounds" or exits with lower valuations is now up. That number exceeded the quantity of new unicorns being created starting in the last quarter of 2015.
Somebody 'invent' a new chat service!
Gotta keep that bubble growing!
What's this term "unicorn" in this context? Obviously not a mythical horse with a horn. Make it your habit to explain inside terms and acronyms when submitting summaries, please.
In case anyone else was wondering, a unicorn is a start-up company valued at over $1 billion.
https://en.wikipedia.org/wiki/Unicorn_(finance)
In case anybody's wondering what a unicorn is (the summary doesn't make it clear), a unicorn is a bisexual person, usually but not always female, who is willing to engage in sexual activities with a couple, without demanding or doing anything that might cause problems or inconvenience to the couple.
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The number of startups worth at least $1 billion has doubled since 2015...At the same time, the number of such companies accepting "down rounds" or exits with lower valuations is now up
Some venture capitalist making a long-shot bet on a start-up doesn't make the company "worth" anything. Valuation is a completely meaningless term in the absence of revenue and net profit to support it.
Most unicorns aren't. Think of the following car analogy deal. Suppose I sell you car for $10K, but we add a clause saying "a long time ago I lost a valuable engagement ring in the car. If found the sales price goes up to $100K".
Would you think it legit if I were then to turn around and issue a press release announcing that I just sold you car for $100K?
Similarly with unicorns nowadays, presently they all have this clause that if their business turns out not to be very successful (which is the case in 9 out of 10 startups) the VC ends up owning the whole thing and hence the price was actual cash exchanged (usually around $200-400 million). Then there is a clause saying that in the unlikely event that the company turns out to be wildly successful (i.e. the ring is found), then said $200-400M gets the VC only 20%-40% of the company.
Companies have announced these deals via press release declaring themselves to be worth a billion dollars and thus a unicorn. This is a misrepresentation of the facts, and indeed if the company had to be valued, say for the purposes of a divorce (not that this happened to me :p ), the probabilities of each outcome would be considered and the company would be given a sub-unicorn valuation.
For those old enough to remember Bubble 1.0, Bubble 2.0 is lasting a lot longer. The effects are still the same:
- Massive over-emphasis of the importance of advertising and data-mining
- San Francisco / SV housing market distortion taken to a whole new level (no NYC this time though)
- Investments in crazy companies/ideas, although it's a little more grounded in reality this time
- Loss of talent to social media companies, same as during the stock bubble when the investment banks grabbed all the smart people
The thing that appears to be different is not as many IPOs - the strategy now seems to get bought by Facebook, Google, Microsoft or some other company and cash out that way. I'm all for innovation and stuff, but when absolutely every new startup is "Tinder for nurses" or "Airbnb for pilots" or yet another iteration on an app that's easy to push ads through on a smartphone, there's a bubble afoot.
One thing that's keeping these unicorns alive that didn't exist the first time around is The Cloud and "DevOps" as far as IT is concerned. Bubble 1.0 meant massive build-outs of networks and data centers, and therefore a huge pile of eBay trinkets after it popped. Now, every new company is just using a credit card to buy AWS or Azure time month to month and can survive much longer on a VC investment.
I presume the reason startups with a $1B valuation are called "unicorns" is because they're ostensibly rare, but if we were seeing 20 new ones each quarter in recent years, I propose "raccoons" would be a more apt name.